Comparing processors to their competitors can be a daunting task. There is no easy way to do an apples-to-apples comparison, but we will provide you with some of the secrets of the trade, including the types of fee and pricing schedules in the marketplace and what to watch out for in your merchant agreement.
If you are considering this daunting task, you have either been approached by another processor claiming they can save you money or you have examined your latest merchant statement and realized your fees have skyrocketed since you enrolled many years ago. The first thing you will want to do before starting your due diligence, if you have a current processor, is determine your true “effective rate.”
You can determine your current rate with a simple analysis of your processing statement. Take the total amount of fees being paid and divide that by the total dollar volume of the transactions processed. The resulting number is called the effective rate – the average rate paid per transaction. We see effective rates between 2.5 percent and 4.5 percent for dental practices, depending on the type of processor utilized, how long they have been with their existing processor and how the transactions are settled. This checklist will provide an overview of the industry and tips for savings on your processing charges.
Not all processors are created equal. Merchant accounts are marketed by two basic methods: the processors who have a direct link to Visa/Mastercard Interchange or an authorized agent for the bank that is directly registered with both Visa and MasterCard as an ISO/MSP (independent sales organization/member service provider). If you are working with an ISO, know that there is an additional layer of cost. Don’t misinterpret this as bad, many ISOs are very competitive (due to low overhead) and their service levels are usually better than what you can expect from one of the larger processors.
A significant amount of the fees that are charged for processing consists of charges that have to be paid to the issuing banks. These charges are referred to as “Interchange.” Interchange fees are set by the banks and the amount depends on a number of factors established by the bank. They regularly add new Interchange levels and change the rates and qualification criteria and levels. With more than 500 Interchange rates, it is impossible when you accept a debit or credit card for payment to know what the actual Interchange cost will be for the card. There is no way around paying, at minimum, the Interchange rate plus a fee to the processor for completing the transaction.
Most processors use four common pricing models:
When you start accepting credit cards in your office, you will pay fees for everything from setup and application to processing and customer service. But no two processors charge the same. One vendor may advertise a low qualified rate but charge more for service items. Another may charge for setup and administration but waive its fees on other services. Processors are notorious for charging a number of fees, in addition to the “discount fee,” for processing, and their merchant account provider’s “terms and conditions” allow them to change existing fees or impose new ones. Below outlines some of the common fees and a description.
Generally speaking, there are two equipment gateway options for dental practices, including:
Dental offices should have a credit card machine that accepts EMV chip technology for credit and debit cards. This will enable you to receive the lowest qualified processing rates. In addition, a machine that offers a PIN pad will also save the office when debit cards are presented. New machines range from $300 to $800, but be aware that many machines can be reprogrammed and utilized with a change in processor. Many processors will also offer lease payments for equipment. A lease will run you up to $40 a month over a three-year period and typically are not very cost-effective.
Instead of a card swipe terminal, desktop software is becoming more and more popular and is usually less expensive than purchasing equipment. The credit card can be swiped through a magnetic stripe reader attached to the computer. The software transmits the transaction over the Internet to the processor. Magnetic stripe readers are less expensive than the actual machines, approximately $100-$150.
Understanding your true credit card rates is confusing at best. Your processor or bank may highlight one low rate, but that rate may only apply to a very small percentage of transactions. Processors charge several different types of fees, including transaction fees, monthly fees and annual fees. With this in mind, it is important to look at each quote in aggregate, being careful not to focus solely on one particular fee, such as the processor’s “discount rate.”
The layout and structure of statements vary widely among processors, making for many different formats. Not only does this make it tough to understand charges on individual statements, it makes it tough to learn how to determine what are base costs (Interchange) and what are markups (processor’s fees). The markup and other ancillary fees are the only negotiable expense. If you don’t understand your statement, call your accountant or processor and request they walk you through each line item so you can be armed with knowledge in this area.
As described in the introductory paragraphs, determining your true effective rate is very simple. We recommend you take 12 merchant statements to get a true picture because some fees are charged quarterly or annually. At minimum, take one statement and total all of the fees being paid and divide that by the total dollar volume of the transactions processed. The resulting number is called the effective rate – the average rate paid per transaction.
Now that have your effective rate determined, you can truly compare processors, even those who offer different pricing models. Be armed with your effective rate and go to your local bank, major bank and maybe your warehouse-endorsed provider to see how it stacks up with their analysis. Have them do a rate analysis on your behalf, and ask them what the “effective rate” works out to be, not how much they will save you. Demand that all quotes have full disclosure in writing, listing every rate and every fee.
If you wait longer than 24 hours after they are authorized, the fee rate will be higher. You can set up your terminal to automatically settle card transactions at the end of each business day.
Enabling your patients to enter their PINs when paying with debit cards will help to reduce costs on these transactions. Debit cards typically have a very small Interchange fee and nominal transaction fee, as per the Dodd-Frank regulations.
Using a keypad to enter the card number will result in higher fees for that transaction. Be sure that staff are avoiding unnecessary key-entered transactions. Keep equipment clean and replace malfunctioning equipment.
If the magnetic stripe or EMV chip is not working, hand-keyed transactions cannot be avoided. Ask patients for the ZIP code associated with the billing statement and enter it correctly. This will ensure that you pay the lowest fee for this type of transaction.
This is when a patient gives you their credit card over the phone or over the Internet. You will pay a higher fee for this type of transaction. Again, answer all terminal-prompted questions, to ensure you receive the best rate for this type of transaction.
This will ensure you have the proper documentation should you receive any chargeback requests. Respond to requests quickly with the required documentation.
Dental offices are required to comply with Payment Card Industry (PCI) Data Security Standards (DSS). The PCI DSS was developed by Visa and other major card brands to help facilitate the broad adoption of consistent data security measures on a global basis. If you store, process or transmit data for payment cards, you must ensure you keep the data secure.
EMV stands for “Europay, MasterCard and Visa” and it is the IC “chip” technology that has replaced the magnetic stripe that has been the standard in the U.S. for credit card data. All processors should be able to support merchants’ acceptance of chip transaction effective April 1, 2013. Full migration for merchants at point of sale is expected by 2017. While EMV chip acceptance is technically not mandated for merchants, but effective October 2015, the fraud liability shifts to the merchant if EMV is not utilized.
Regulations require that processors send a 1099 annually that reflects all credit card processing volume. Please ensure that your 1099 Tax ID number and name match the name under which you file your tax return. This will ensure you receive the proper paperwork and are not charged any mismatched fees.
While CDA Endorsed Services does not have a formal endorsed relationship with any vendor, the options below could provide a viable solution for your practice.
There is no avoiding it: if you accept credit and debit cards, you will have to pay fees. Your best defense against hidden costs and unnecessary downgrades is to keep accurate records of your processing costs. Never trust a savings analysis done by a processor without first reviewing it and having it reviewed by a third party. Audit your records regularly to build your own benchmarks and evaluate your processor on an annual basis.
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